CBSE Class 11-commerce Answered

Equilibrium price and equilibrium quantity are determined when quantity demanded is equal to quantity supplied.

1. If there is an increase in the income of the consumer then the demand curve will shift towards right. This creates excess demand at the old equilibrium price. This leads to competition among buyers which raises the price. This increase in price leads to rise in supply and fall in demand. These changes continue till new equilibrium point is achieved. As there is only increase in demand only, equilibrium price rises from OP2 to OP1 and equilibrium quantity rises from OQ to OQ1.

• Increase in supply then the supply curve shifts towards right. This leads to fall in equilibrium price and rise in equilibrium quantity.
• Decrease in supply then the supply curve shifts towards left. This leads to rise in equilibrium price and fall in equilibrium quantity.